Is the dollar trading against the euro independently of interest rates?
|The US dollar has been gaining ground against the euro for just over a year. From a 1.2372 close on April 18th last year to the 1.1180 finish on May 23rd the united currency has lost 9.6% versus the greenback. For roughly half of that period April to November 2018 US interest rates were rising, for the second half they were falling.
The interest rate on the 2-year Treasury, the government security with the closest tie to currency movements rose from 2.40% on April 18th 2018 to 2.95% on November 8th, from then it fell to 2.18% by May 24th.
Reuters
For the first period of rising US rates (4/18/18-11/8/18) the euro lost 8.2%. In the second period (11/9/18-5/24/19) the euro lost the balance 1.6%, given the percentage difference in the original rate.
If we look at the German 2-year yield for a European comparison it has moved from -0.57% on April 18th last year to -0.61% on November 8th and then to -0.63% on May 24th.
Reuters
Comparatively the US range of 55 basis points on the upside and 77 on the downside dwarf the German change of 6 points. Clearly the euro level is not being driven by interest rate differentials.
In effect the fall in US rates has blunted the dollar advantage but it has not taken over the relationship between the currencies. The macro-economic effects of the European economic slowdown and the potential damage from yet unsettled British departure continue to weigh heavily on the euro despite the shrinking rate advantage for the dollar.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.